Meaning
Commercial tactics involve a manufacturer offering products to the end consumer at a price lower than the wholesale rate provided to distributors. This direct selling undercut often happens during holiday promotions where the brand seeks to capture the full retail margin. They strain the relationship between the supplier and the partners who invest in local inventory.
Margin Impact
Retailers lose their competitive advantage when the manufacturer provides a better deal on its own website. The presence of a direct selling undercut forces the distributor to choose between losing the sale or selling at a loss to match the price.
Channel Conflict
Friction arises when authorized dealers feel the brand is competing against them rather than supporting their efforts. Contracts may include clauses that prevent a direct selling undercut by requiring the manufacturer to maintain a price floor across all digital platforms.
Parity Clause
Agreements sometimes specify that the brand cannot offer a price more than ten percent lower than the suggested retail price. This protection ensures that the distribution network remains profitable and motivated to carry the product line. Proper enforcement of this rule prevents a race to the bottom that could destroy the brand value.
